Melrose's $10 billion GKN bid opposed by investor adviser PIRC

LONDON (Reuters) - Investor adviser PIRC has told shareholders in Melrose Industries (MRON.L) to oppose its 7 billion pound ($10 billion) bid for engineering group GKN GKN.L., putting it at odds with two other proxy voting firms.

Melrose shareholders are due to vote at a March 8 meeting on the potential acquisition and the turnaround specialist’s plan to issue shares to help to finance the GKN bid.

But PIRC, which advises institutional investors, warned Melrose shareholders in a Feb. 27 report that “various issues” mean they should oppose the proposed takeover of GKN.

This conflicts with recommendations issued last week by fellow advisory firms Institutional Shareholder Services (ISS) and Glass Lewis, which have both backed the deal.

The board of GKN, a mainstay of the British engineering sector and manufacturer of parts for the Eurofighter Typhoon and Black Hawk helicopters among others, spurned the cash-and-paper bid last month, prompting Melrose to turn hostile and take its offer directly to GKN investors.

This has prompted a war of words between the two and some lawmakers have raised national security concerns.

Melrose typically breaks up companies once it has improved their performance and some British lawmakers are worried that parts of GKN involved in defense programs could be sold on to a foreign buyer.

PIRC has highlighted to investors that Melrose’s decision to go hostile means that it “has not benefited from the co-operation of the GKN board”.

The adviser also said that “significant political and other considerations, including security concerns” have been raised and that Melrose has reported annual losses two years running.

This is in contrast to the views of ISS and Glass Lewis.

“Given the sensible strategic rationale, (Melrose’s) turnaround track record and reasonable valuation, approval of the acquisition is warranted,” ISS said in a note to clients.

Glass Lewis said that even though GKN was bigger and more complex than other takeovers that Melrose has attempted, the turnaround specialist’s previous successes “affords management and the board the benefit of the doubt.”

“Melrose has always been highly focused on engaging with its shareholders to secure their ongoing support, including in relation to its offer for GKN,” a spokeswoman for Melrose said.

Reporting by Ben Martin, Carolyn Cohn and Simon Jessop; Editing by David Goodman and Alexander Smith